6 Simple Ways to Lower Your Credit Card Debt
It should come as no surprise that as of 2016, the average household has credit card debt totaling $16,048, with 38.1% of US households carrying some form of credit card debt.
And this is in addition to mortgage debt, car loans, and especially student loan debt, all of which have even larger average balances than credit cards for most Americans.
The good news is that despite this high level of credit card debt for so many of us, there are still options available.
Below are 6 simple ways you could lower your credit card debt going forward:
- Consumer credit counseling
- Debt management programs (DMPs)
- Debt settlement programs
- Balance transfers
- Consolidation loans
- Negotiating directly with your credit card companies (for a lower rate)
In this article, we’ll examine each of these options in detail so you can decide which one best fits your needs.
Option #1: Consumer Credit Counseling
The first step everyone should take when attempting to lower their credit card debt is to schedule a consumer credit counseling session.
These free sessions are usually 45-60 minutes during which a credit counselor will review your entire financial situation and create a written action plan for you to follow based on your income and expenses.
When choosing a credit counseling service, make sure they are both accredited and certified by a regulating body. This will ensure that you are going to a trusted organization with your credit needs.
Many reputable credit counseling services operate as nonprofit entities so there is no reason to pay a fee for their services.
Sometimes these sessions are enough to help borrowers manage their credit card debts on their own going forward. But if not, credit counselors are then able to help them with the next step: enrolling in a debt management program (DMP).
Tip: It’s also a good idea to know exactly where your credit stands before you speak with a consumer credit counselor. You can get free copies of all three credit reports (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com.
Option #2: Debt Management Programs (DMPs)
Debt management programs (or DMPs) involve a credit counselor working directly with your creditors to lower your interest rates and make your monthly payments more affordable going forward. (To be clear, these programs do not lower your principal amounts, just your interest rate and monthly payments.)
With a DMP, your new monthly payments will be made directly to your credit counseling agency. This agency will act as a third-party administrator who then disburses the payments to your creditors.
Credit counseling services do this through pre-arrangements they have with most large financial institutions. These arrangements allow them to both lower your interest rate and expedite the payment process on your behalf.
Debt management programs typically have repayment terms of 3-5 years and require that you close all associated credit card accounts when you enroll. (This may require a lifestyle adjustment for some, so plan on arranging other options beforehand!)
Payments made through a DMP will be lower than what you were previously paying and for a set amount over the term of your program. When discussing enrollment, counselors will want to ensure that you can make all future payments for the entirety of your term, not just a month or two.
The good news is as one creditor is paid off, a larger portion of your standard payment goes toward satisfying the next, making the following payoff that much quicker.
When enrolling in a DMP, ensure that all fees are listed up front. Enrollment fees should also be extremely low, if at all.
Enrolling in a DMP will not affect your credit score directly. (However, the way in which your creditors choose to report your accounts to the national credit bureaus may have a negative effect. Be sure to ask about this possibility as well before you enroll.)
If you think a debt management program might be right for you, here are three companies to consider:
- Consolidated Credit – Consolidated Credit has been a trusted source of credit counseling and debt management solutions for over 20 years and have successfully helped more than 5 million people with their debt solutions. They are an ANAB Accredited company, an EIFLE Award winner for excellence in financial literacy education, and have an A+ rating from the BBB. You can contact them at 1-800-320-9929.
- Cambridge Credit Counseling – A nonprofit credit counseling service with over 20 years of experience helping customers with their credit card and unsecured debt solutions. They are ranked as one of the best credit counseling and DMP services for 2017 and are a Consumer Affairs Accredited company with an A+ rating from the BBB.
- GreenPath – Also ranked as one of the best credit counseling and DMP services for 2017, GreenPath is a nonprofit financial wellness company with over 55 years of experience helping customers with their debt solutions. They are also a Consumer Affairs Accredited company with an A+ rating from the BBB.
Option #3: Debt Settlement Programs
Your third option is enrolling in a debt settlement program (often referred to as “debt resolution” or “debt negotiation”).
Where DMPs focus on lowering your interest rate, debt settlement programs involve lowering the total amount you owe. Through a debt settlement program, the amount you owe is reduced and then paid off in one lump sum (or possibly over time if a term settlement is agreed to).
Debt settlement can be a great option if your financial condition reaches a point where you are unable to pay off your debts in 2-3 years. This is because in order to convince your creditors to consider a debt settlement arrangement, you will have to prove true financial hardship.
Due to your limited ability to pay, debt settlement programs typically reduce total debts to between 15% to 75% of the amount owed. Creditors are often willing to do this as an alternative to you declaring bankruptcy and paying them nothing.
Debt settlement companies are often less regulated than DMPs so it’s very important to use a reputable law firm or private company when choosing a program. You should also ensure that they are accredited by a regulating body such as the AFCC.
The exact details of your debt settlement program will depend on your ability to pay, the law firm or settlement company you go with, and the policies and procedures of your creditors. It’s important that you understand these policies from the beginning in order to find the best option for your needs.
Often, debt settlement companies will want you to collect a certain amount to offer as repayment to your creditors before they begin, which can result in much larger interest payments and penalties. Again, make sure you understand the details of your debt settlement program before you enroll.
Unfortunately, unlike DMPs, enrolling in a debt settlement program will have a direct negative effect on your credit score.
If you think a debt settlement program might be right for you, here are three companies to consider:
- National Debt Relief – Recognized as one of the nation’s top debt settlement companies, National Debt Relief is BBB Accredited and has helped over 100,000 customers get out of debt successfully. You can contact them at 1-888-979-9776.
- CuraDebt – A debt settlement company with an impressive savings average of 40% after fees, CuraDebt is one of the top-ranked settlement companies for 2017. They work with clients with as little as $5,000 in debt and is both AFCC and IAPDA Accredited. You can contact them at 1-877-850-3328.
- New Era Debt Solutions – Known as having one of the most transparent debt settlement websites online, New Era Debt Solutions is also one of the top-ranked settlement companies for 2017. New Era also has shorter time frames for repayment, lower fees, and an average debt reduction of 44%. They are both BBB and IAPDA Accredited. You can contact them at 1-800-527-4421.
Option #4: Balance Transfers
Your fourth option for lowering your credit card debt is to complete a balance transfer. The process involves simply opening up a new credit card, with a much lower rate, and then transferring the balance of your current card to this new one.
The lower interest rate on your new card means that you start saving from your very first payment. But not only that, many new cards offer 0% interest
for the first 12-21 months, which compounds your savings significantly during that initial period.
In these cases, it’s important to pay as much of your debt as possible during that time. And be sure to make every payment on time (as failure to do so will result in cancellation of this 0% interest benefit from then on).
However, it’s also important to keep in mind that you may be required to pay a balance transfer fee when doing this. This fee is actually charged by the financial institution that gave you the new card, and will depend entirely on the amount transferred (this is NOT a flat fee).
Balance transfer fees are often in the form of a standard amount or a percentage of the balance transferred, whichever is higher. And these fees are charged up front. However, there are cards that have NO transfer fees, so it’s very important to do your research before making a decision.
There are also credit card that offer no balance transfer fees AND 0% interest for an initial period. This allows you to pay down your debt interest-free during this time. Talk about a win-win!
Tip: It’s also important not to close your old card during this time. Tempting as this might seem, doing so will actually HURT your credit going forward. It’s best to simply cease using this card from that point forward while you focus on paying off your balance.
Below are links to some of the top-rated credit cards for 2017 for those interested in a balance transfer:
Option #5: Consolidation Loans
Consolidation loans are another option that can help you lower your credit card debt. These are loans made directly to a borrower in order to consolidate credit card debts and other personal loans into a single new loan.
These loans offer the benefits of a single monthly payment going forward and often with lower rates and fees. They are especially helpful for those with high-interest credit card debts.
To be clear, consolidation loans roll your current debts into a single new loan, usually with a lower interest rate and fees, they do not lower your principal balance.
Once enrolled, you will make fixed monthly payments to your lender for a term usually from 2-5 years. Your new interest rate on this loan will be determined by your credit history and will be fixed for the life of your loan.
For those with poor credit, consolidating unsecured debt—such as credit cards—may not result in a lower interest rate.
With good credit, you may also have the option of extending your term, which can result in lower monthly payments but much more paid in total interest. As always, make sure you understand the details of your consolidation loan before you enroll!
If you think a consolidation loan might be right for you, here are some options to look into:
- Lending Club – As the nation’s largest Peer-To-Peer lender, Lending Club offers personal consolidation loans anywhere from $1,000 up to $40,000. While having stricter credit requirements, their rates are very competitive and their website is extremely transparent. The company is A+ rated and BBB Accredited.
- PersonalLoans.com – This company can connect you with lenders in all 50 states for consolidation loans up to $36,000. They offer very competitive rates and an easy-to-understand website while acting strictly as a referral company for other lenders. You can contact them at 1-800-772-2274.
- Avant – Focusing on borrowers with lower credit scores, Avant makes direct loans to borrowers and offers funds in as little as one day for up to $35,000. They also offer flexible repayment terms despite slightly higher APRs.
Option #6: Negotiating Directly With Your Creditors
When it comes to lowering credit card debt, there may be certain situations where going through a DMP or any other program is not the best choice.
In fact, one option when attempting to lowering your credit card debts is to simply cease using your credit cards altogether, contact each company directly, and request a rate reduction.
This strategy has the added benefit of not affecting your credit score and can be a great option if your circumstances allow it.
If they initially turn you down, simply make a few larger-than-normal payments and then make another request a few months later. While this make take several calls, your efforts will be well worth it.
There’s a good chance that if you show a sincere effort to pay back what you owe, your credit card company may have more of an incentive to work with you on the rate.
During this time, always devote your repayment efforts toward paying off your cards with the highest interest rates first, as this can save you sizable amounts in interest alone.
As with most financial solutions, the right option when it comes to lowering your credit card debt will depend largely on your individual circumstances.